Fagron Sa Ord

Hello and good morning, everyone. Welcome to Fagron's H1 2025 results webcast. I'm joined today by our CEO, Rafael Padilla, and our CFO, Karin De Jong. Rafael will start by discussing the company's performance and a closer look at the regional development. Karin, well done walking you through the financial results. We will open the floor for questions at the end of the session. With that, I will hand over to Rafael.

Thank you, Ignacio, and good morning all. We're pleased to report strong first half with revenue reaching 476 million. This reflects 11.3% organic growth at constant exchange rates. Growth came from all the regions and segments led by LATAM, BRANZ, North America, and compounding services. Profitability grew by 12.3% to 95 million. and our margin improved to 20% support by operational excellence and synergies from acquisitions. We also continue to execute on our M&A strategy with four new acquisitions completed, Bella Corp in Australia, Unicam and Edge Trade in Serbia, and Active Pharma in the UK. Integration of our earlier acquisitions, including LSP, Pharma Product, Curfers, EuropetSafe, and GINAMA is progressing well and in line with expectations. At SHARE, during our C&D in April, we were evaluating the expansion of Anadil's Vegas facility. We are happy to confirm that the project has now been approved and will be operational during 2028. And to finalize, our guidance for the full year remains unchanged. Meet to high single-digit organic revenue growth at constant exchange rates and slight increase in profitability year-on-year. Karin will provide more details shortly. Let us now look at the regional dynamics. In EMEA, BME performed well and continues to see the benefits of our diversified geographical footprint across the region. Compounding services also delivered solid growth driven by rising demand across both sterile and non-sterile. For the near future, we continue investing in a healthy pipeline of new launches and refinement of our commercial approach to drive further growth. Operational excellence remains a key success factor. In EMEA, this focus translated into better availability and procurement savings, supporting both top-line and margin expansion. Finally, the Dutch FSS expansion project we announced last year is advancing according to plans. Moving into Latin, Brazil remains a standout with continued leadership and a clear growth in the underlying market. In B&E, we are leveraging our global R&D center in Brazil to drive innovation, supporting recent product launches and adoption through targeted prescriber education. Consul Pharma the biggest industry fair in the world, was a huge success again, giving us good visibility for the upcoming period, maintaining good momentum. Like in EMEA, we're making good progress across our operational priorities, which is reflected in both revenue growth and margin supported by higher product availability. To conclude, the Intiplast and Purifarma acquisitions are pending closure. 13 to North America, B&E posted a year-on-year improvement supported by enhanced operations and ongoing drug shortages. We continue to focus on improving our market share as we are clear challengers in this category. Compounding services remain strong, with growth from new customer wins, increased volume from existing clients, and persistent drug shortages. I shared previously GLP-1 related sales concluded in Q2 leading to a more challenging comparison in the second half. During our C&D, we explained that the transition to an existing facility in Tampa is progressing as planned and is expected to be completed later this year. In the meantime, we are operating both the old and new sites in parallel, which has temporarily resulted in double costs. Finally, Our acquisition of Bellacorp in Australia marks our entry into the APAC region. Given its market characteristics, Australian integration will be managed under North America. Let's now say a few words about quality. Quality remains our key differentiator in our industry. With over 35 facilities to audit globally, We are constantly inspected by regulatory bodies across the world to uphold the highest quality standards. During the first half of the year, 16 audits were conducted by regulatory bodies. All of them concluded with minor observations and we received GMP licensed renewals at our Dutch and Czech facilities. Additionally, our internal team has also been working intently and has conducted five global audits. With this dual approach, we enhance our abilities to adapt and stay ahead of evolving regulations. Before moving on, regarding Wichita's warning letter, the status remains the same as it was during our CND in April, where the FDA acknowledged our corrective actions and adequately addresses its requirements pending the site visit. And before Karen takes over on our growth strategy, to support our organic growth, we are announcing an expansion in Azeo's Las Vegas facility to start in Q4 this year. The investment will be $29 million over two years and will give us revenue capacity of $150 million. This will position us to meet the rising demand, boost automation, and uphold the highest standards of quality. An additional leverage from this project is that this expansion will not require individual state pharmacy licenses to operate. Turning to our M&A activities, we're announcing today four more acquisitions showcasing our disciplined serial acquire profit. Starting with Dalla Corp in Australia, with this acquisition, we entered attractive APEC region. Dalla Corp is a supplier of premium quality raw materials and equipment to compounding farms. Additionally, We also entered directly the Serbian market with acquisition of the two leading players, Unicam and Ethitrade. Unicam specializes in the import, sales, marketing, and distribution of pharmaceutical products, while Ethitrade holds licenses for repackaging and relabeling of APIs and XCP. Lastly, we also acquired a market leader in essentials market in this UK, Actifarma. The company specializes on supplying pharmaceutical raw materials and complements our previous acquisition of LSP. With LSP and Actifarma, we have now a solid market position in the UK. And now, Karin will go through the financial highlights for the first half of this year.

Thank you, Rafael, and good morning, everyone. Thank you for joining this call. Let me walk you through the first half of the 2025 financial results and provide more colour, full-year 2025 outlook. In H1 2025, revenues increased by 10.9% on a reported basis to 476.1 billion euros, with North America again delivering the strongest growth of 16%. Organically, at constant exchange rates, the growth was 11.3%, mainly reflecting the weakness in Brazilian AI. Gross margin increased by 140 base points year-on-year, driven by the increasing rate of revenues from North America, which has a higher margin, and procurement savings globally. Our operating expenses increased by 14.1% year-on-year, reflecting strong volume growth in North America and the impact of our recent acquisitions. At a group level, our profitability expanded by 13 basis points year-on-year to 20%. showcasing the benefits of our improved operational capabilities and synergies from acquisitions. We maintain our strong cash-generating capabilities as operating cash flow improved by 25.1% to €52.5 million year-on-year. For the first half of the year, cash conversion is impacted by the phasing of working capital. Lastly, our net debt to Evera Ratio remains stable at 1.5 times, leaving us enough headroom for any potential acquisition. Moving on to the next slide, the bridge illustrates our revenue development for the first half of 2025. EMEA reported a solid 3.8% organic growth at constant exchange rates, while LATAM posted an outstanding 16.1% organic revenue growth at CER, supported by strong performance of Brenton Essentials in Brazil. North America's revenue grew by 15.6% organically at CER, driven by a strong performance in compounding services. Our recent acquisitions contributed €13.1 million to the revenue. ATLIX during the period was a headwind, mainly in LATAM, due to the weakening of the Brazilian AI. On the right side, our P&L shows a 10.9% revenue increase together with our EBITDA before non-recurring results growing 12.3%, which reflects our operating leverage benefits. We see an increase in depreciation and amortization by 16.5% year-on-year, mainly related to the amortization of PVA items of our past acquisitions and investments in North America. Our financial costs increased versus last year, driven by higher interest rates on our debt items due to phasing out of cost hedging instruments in combination with an increased ethics results and more costs. As a result, earnings per share grew by 12.7% to 0.62 euros for the first half of the year. Turning to the next slide, EMEA. In this region, revenue performance was supported by solid organic growth within all segments and M&A. Organic growth in EMEA was supported by geographical diversification in this region, driven better pricing and volume year-on-year, and an improved product availability. Looking at the region's profitability, Revla margin expanded by 60 basis points versus H1 2024. This expansion was achieved thanks to the successful execution of our strategic priorities and operational excellence initiatives. Two acquisitions, namely Euro ETC and Dinama, are the main contributors to EMEA's inorganic growth in the first half of the year. And as Rafa mentioned earlier, we closed the acquisitions of Unichem, SB Trade and Active Pharma in July, and this will contribute to inorganic growth in the second half of the year. For the year, we expect a low single-digit organic revenue growth at CER for EMEA and profitability margin in line with H1 2025. Moving on to LATAM, Sales increased by 1.1% to 86.9 million euro, showcasing strong growth in the brands and essentials, but mostly offset by the FIF impact on a weakening Brazilian AI. Organic growth at CBR was 16.1%, and as mentioned by Rafa earlier, we continue to leverage our innovation strength and launch new products in the market, driving the number of prescriptions and overall volumes. Based on this, we were able to see a nice price and volume dynamics where both were positive year-on-year. In LATAM, we continue focusing on improving our operational capabilities even further. We achieved a 10 basis point webinar margin expansion to 17.4%. We expect a high single-digit to low double-digit revenue growth against CDR for full year 2025. This does imply a normalization of growth rate in the second half of the year compared to H1 2025. mainly as we start to comp off against strong recovery growth rates seen in H2 2024. For EBITDA margin, given the seasonality of this region, H2 is always better than H1 on an annual basis. So we do continue to expect an improvement year on year. Moving on to the next slide, revenues in North America grew by 16% to 212.4 million euros as compounding services maintains its accelerated growth rate while FX represented a small headwind effect. B&E continues to grow at a fast pace, mainly supported by operational improvements in product availability and drug shortages. During H1, we benefited from GLP-1 drug shortages for a total amount of $20 million. Of that, the B&E benefited $5 million. Excluding the revenues from drug shortages, B&E grew by 6%. Compounding services continues to be the growth engine of the region, reporting a solid 16.6% revenue increase year-on-year, or 15.6% organically against constant exchange rates. Trends seen in the past, outsourcing and a high demand for personalized medicine remain and supported the results. During H1, compounding services, and more specifically NSAO help, benefited from GLP-1 shortages. As shared previously, GLP-1 compounding concluded in Q2. This will lead to a more challenging comparison in the second half. Just to remind everybody, in H2 2024, we had $12 million in compounding services and $3 million in the B&E segment. Our operating costs in the region increased year-on-year as we continued to support the volume growth at compounding services and the double cost of NSAO while the transfer to the new facility takes place. The effects from higher operating costs were fully compensated by improvements in operational performance, resulting in a stable revenue margin year-on-year of 19.5%. Going ahead for North America's revenues, we expect a low double-digit percentage of organic growth at CER and an EBITDA margin broadly in line with H1 2025. Turning now to our cash flow, our business model has several strengths, and one of them being strong cash conversion. Operating working capital increased by 150 basis points to 13.8%, reflecting higher inventories to support product availability. The temporary build-up of inventory is a strategic move in LATAM ahead of the biggest industry trade fair, Consumpharma, and improving product availability. Operating cash flow increased by 25.1% to 52.5 million euros. Maintenance CAPEX ended at 3.1% of revenue when excluding one-off projects. Our free cash flow conversion was 39.9% when adjusting for one-off CAPEX slightly below our guidance. However, it should correct towards the end of the year as working capital normalizes. Moving on to the next slide, our net debt evolution for the period. the bridge shows an increase of 50 million euros in our net debt, going from 271 million to 321 million euros. The increase is mainly related to the acquisitions. Nonetheless, our net debt to EBITDA ratio remains stable at 1.5 times, giving us more than enough headroom for any potential acquisitions down the road. And going forward, we will continue our prudent approach and remain below the 2.8 times internal threshold. So before I hand it back to Rafael, let me go through our full year 2025 outlook. We are expecting revenues to be in the mid to high single digit organic growth at CER with different dynamics depending on the region. For EMEA, we expect a low single digit percentage of organic growth at CER with an upside in organically driven by the acquisitions done and announced today. LATAM is expected to end as a high single-digit to low double-digit percentage of organic growth at CDR. And as SAF North America will have tough bumps as we phase out the tailwind of DOP-1 shortages. This will have an impact on growth levels in Q3 and Q4 2025. However, the underlying drivers are strong, and we expect a low double-digit percentage of organic growth at CDR. We also expect our profitability margin to slightly improve year on year. EMEA showed strong results in H1, and we expect this to remain during the course of the year. North America is expected to be broadly in line with H1 level. And lastly, we expect LATAM profitability margin to slightly improve in 2025. Please note that our profitability guidance only considers the acquisitions that are closed. We expect maintenance capital to be at the 3.5% of revenues for 2025, excluding the already announced one of projects and investments. I would now like to hand it back to Rafael for his closing remarks.